Gold trading reminder: Gold prices retreat to 2020, market expectations focus on Thursday’s U.S. CPI

The situation for gold in January this year is not very optimistic. Spot gold fell by more than 1% on Monday. The market currently predicts that gold prices will continue to decline, focusing on the key price of US$2,000 per ounce. Gold still has trend line support around $2020/oz, but sellers are now in the driver's seat. That's unlikely to change unless bond yields start to fall or the market reverses last week's price action for other reasons. Judging from the current situation, the market may have to wait until the release of US CPI data on Thursday to know the subsequent trend of gold.

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(Spot gold trend chart)

Spot gold closed down 0.85% at $2,027.97 per ounce.

COMEX February gold futures closed down 0.8% at $2,033.5 per ounce.

COMEX March silver futures closed down 0.02% at $23.31 per ounce.

[Market News Analysis]

Gold prices extended intraday losses on Monday and fell back closer to two-week lows hit on Friday following upbeat U.S. monthly jobs data. Earlier on Monday, gold hit a three-week low of 2016.71. A lack of significant fresh fundamental news at the start of the trading week has precious metals traders focusing on outside markets, while crude oil prices, the leader in the raw commodities sector, fell sharply.

The widely known non-farm payrolls (NFP) report pointed out that the U.S. labor market remains resilient and forced investors to continue to lower their expectations for more aggressive policy easing from the Federal Reserve (Fed). That, in turn, remains supportive of rising U.S. Treasury yields, which has boosted the dollar and driven flows away from the non-yielding yellow metal. However, "Bond King" Groh believes that the 4% yield on the 10-year U.S. Treasury bond is overvalued. He said that the 10-year U.S. Treasury Inflation-Protected Bond yield at 1.80% is a "better choice."

Fed Governor Bowman said on Monday in remarks prepared for the South Carolina Bankers Association's 2024 Community Bankers Conference that the Fed's monetary policy appears to be "restrictive enough" to reduce inflation to the Fed's 2% target. Bowman also said she would be willing to support an eventual rate cut as inflation declines. That marked a change from her long-held view that further tightening of policy may be necessary to control inflation. "My view has changed, given that if policy rates remain at current levels for some time, inflation could fall further," Bowman noted. "If over time, inflation continues to fall closer to where we are 2% target, then eventually a process of rate cuts will need to be initiated to prevent policy from becoming too restrictive."

The U.S. data points this week are the December Consumer Price Index report on Thursday and the December Producer Price Index report on Friday. U.S. inflation has cooled in recent months, allowing the Federal Reserve to ease its tight monetary policy. The CPI report is expected to rise 3.3% year over year, compared with a 3.1% increase in the November report. If the data is strong, it could boost the U.S. dollar and weigh on U.S. dollar-denominated gold.

"Gold's near-term performance will depend on this week's inflation data, but the fundamental outlook appears favorable as it is only a matter of time before interest rates fall," wrote Marios Hadjikyriacos, investment analyst at currency broker Another bullish trend, one that could continue for many years if the geopolitical climate remains unstable."

Sean Lusk, co-director of commercial hedging at Walsh Trading, believes that today’s post-non-farm payrolls sell-off and post-ISM rise are both intended to adjust expectations for the Federal Reserve’s interest rate cut, but the looming conflict in the Middle East is also supporting gold and silver prices.

Adam Button, head of currency strategy at Forexlive.com, said seasonality and the latest employment data point to higher gold prices, but the precious metal's reaction to CPI will be key.

[Tuesday’s trading day focuses on financial data and events (Beijing time)]

① 14:45 Switzerland’s seasonally adjusted unemployment rate in December

② 15:00 German industrial output monthly rate after seasonally adjustment in November

③ 15:45 France November trade account

④ 18:00 Eurozone unemployment rate in November

⑤ 19:00 US December NFIB Small Business Confidence Index

⑥ 21:30 US trade balance in November

⑦ At 01:00 the next day, EIA releases its monthly short-term energy outlook report

⑧ 05:30 the next day, API crude oil inventories in the United States for the week to January 5